Omaha Daily Bee Newspaper, July 13, 1902, Page 32

~ Bank of England Its Origin, History and Methods ENGLAND'S MIGHTY BANK. (Copyright, 1902, by Frank G. Carpenter.) ONDON, July 3.—(Special Corre- spondence to The Bee.)—I was taken over the Bank of England today by its secretary and shown the enormous funds on hand In bullion and notes, I had a letter from our secretary of the Treasury to the governor and had called with the bope that I might have an interview with him on the Amer- lcan invasion and other matters relating to the financial condition of this richest empire of Burope. The governor, however, for obvious reasons, gives no interviews to the newspapers. His opinions might create a rise or fall of stocks and, there- fore, he has to be careful of his utterances. The Bank of England Is perhaps the chief financlal institution of the world. It is a private corporation but it has since its or- ganization been the depository of the gov- ernment funds. It has much to do with financing the government debt and it might be called the National Bank of Great Brit- ain. The bank is now 208 years old. It was founded on the 27th of July 1694, by an American. His name was Willlam Pater- son and he was born in Scotland, but he got the foundation of his fortune on this side of the Atlantic. He came from Bristol, England, to the new world to seek his for- tune, settling In the province on Massachu- setts bay. He lived some time in Boston, and was at one time a merchant and ship owner there. From Boston he sent out pri- vateers to prey upon the ships of countries then at war with Great Britain, and also had ships trading with the Bahamas. He was married in Boston, anG later on left there and settled in London. First American Invader. Mr. Paterson might be called the first Ame. n invader, for he was the nrst to take capital, made in America, and use it in Great Britaln. He had in his character many of the elements of Plerpont Morgan, any he saw his chance to make money out of the British government, which was then financlaliy crippled by its ware with ¥rance. The government wanted money and Pater- son saw that it could give exclusive bank- ing privileges to an institution which would turnish a permanent loan at a reasonable 1ate. He organized a combination of some of the chief British merchants, backed by a capital of $6,000,000, and offered to loan this amount to the government at the then low rate of 8 per cent per annum, on the condi- tion that the government would give the combination a charter to deal in bills of ex- change, bullion and bonds, and pay it $100,- 000 a year for handling the government debt, This offer was accepted, and the Bank of England was the result. Paterson was one of the original direclors, and dur- ing his life the bank became firmly estab- lished. The institution was a prosperous one from its etart. The government steadlly in- creased its connections with it, and woday it owes the bank about ten times as much as when it was founded, although the interest 1ate has fallen from 8 per cent to 2% per cent per annum. Bank of England Notes. During my trip through the bank I spent some t(lme in the printing department watching them make the Bank of England notes. The ecenes there are much the same @8 1n our bureau of engraving and printing at Washington, save that the paper 1s dif- ferent. Our bank note paper has a graylsh tinge, with slik threads of different colors runping through it. The English bank note paper is as white as the whitest parch- ment. It bas a eort of transparent white- ness, and it is exceedingly thin ana re- markably strong. It is made of pure linen rags by a secret process in nrzper mills whish do nothing else. The paper is the same today as it has been for a hundred years, and it is almost impossible to imi- tate It The notes are almost square. There is no lathe work wupon them. They are printed in jet black ink, and the printing machines are such that they number the notes from 1 to 100,000. This numbering is done automatically, so that the notes of ¢ach bundle of 10,000 are in their natural order when they are taken away. The> smallest notes now printed are those for £5, and the largest for £1,000. The paper is so thin that in the bank vault where bundles of notes are kept I was able to hold a million pounds worth of them in my two hands, Tos amount reprisented a va.ue of $5,000,000, and it did not weiga more than a score of the Sunday edition of this newspaper. It made me feel like a millionaire, but the feeling was momen- tary, for the doors were carefully guard- ed and the officials of the bank who stood about me were lusty fellows, who would have certainly resisted any attempt at departure with the valuable paper. The notes, in fact, welgh only 18% grains to the note, and yet they are so strong that a single sheet of the paper of which they gre made¢ will support fifty| pounds weight with- out tearing. All notes are de- stroyed after they are redeemed, but they are kept a cer- tain time in order that any question concerning their ownership in the past may be traced. The Englishman takes the number of his bank notes, and in many cases he makes the man who pays them over to him indorse his name on the back. The bank keeps (he numbers and after the notes come in they keep a record of the bank sending them, and they can in a moment pick out any note that they have received during the last five years. When our greenbacks and silver certifi- cates come into the treasury they are de- stroyed by cutting them in quarters and then grinding them into a pulp in boiling hot water. They are redeemed by the is- suing of fresh notes. The Bank of England notes are usually redeemed with gold, golden sovereigns being shoveled out in scoops just like the little shovels our grocers uge fcr sugar. The gold Is not counted, but is welghed, the tellers know- Ing just how many sovereigns go to the ounce or pound. The notes are cancelei by tearing a plece out of a corner of each, and are then flled away in the banknote catacombs in boxes for a period of five years. At the end of this time they are burned. OF ENGLAND. In the Bullion Vaults. I went down into the bullion vaults. These look much like those of the mint at Philadelphia. In them are great piles of gold bricks and gold pigs, which are sent in from the mines of all parts of the world. I saw gold from Australia, South Africa, India and the United States, and the man told me that it was almost absolutely pure. I saw also great vaults in which are gold soverelgns in bags, each holding several quarts. The bags are piled up like much grain, and the means of protecting them does not scem to be as good as those of the treasury at Washington. I do not remem- ber the exact amount of bullion on hand, but it is probably less than we have in our own treasury department, for the flood of gold is now coming our way. I have spoken of the Bank of England as a private bank. If you have the right kind CENTER OF FINANCIAL LONDON-—-ROYAL EXCHANGE IN FRONT, BANK AT LEFT. WILLIAM PATERSON, “AMERICAN INVADER,” WHO FOUNDED THE of an introduction you can open an account in it, but you have to keep enough money cn deposit to make it pay the bank to do your business. The officials estimate that each account must yield 12 cents to the bank for every check cashed throughout the year, so If you issue a thousand checks the bank will have to make at least $120 out of you or it will refuse to keep your ac- count. There are now about 5,000 private accounts carried, and the private deposits average over $100,000,000, A large part of the business of the bank is in handling the government debt. I saw the clerk paying out dividends in the divi- dend room. Here are government securi- ties of all kinds and the stockholders come to cash their coupons. It is estimated that there are 275,000 persons who own such stocks, and a large number of them come here in person for their money. The in- terest paid out amounts to more than $300,000,000 a year, and a good part of it is now going to Americans, as they have but lately been investing in English government securities. Runs on the Bank. And does the big Bank of England ever have a run upon it? Yes, indeed! This has been the case in times of panic, and there have been in- stances when the bank.has had to suspend specie payments. It did so during the first year of its existence. The government had calied In the silver to have it recoined and the bank was hard up for currency. Its stock went down from 110 to 83 and its di- rectors issued a call of 20 per cent on the shareholders. The bank suspended specie payments from 1797 to 1819 and when it resumed it had about $100,000,000 worth of gold and silver to begin with. There have been times when it has pald out depositors in shillings and sixpences in order to gain time and get money to meet its obligations and once at least it had a line of its own men who accepted such silver payments and deposited them again as fast as they were received, so that a continnous streany of the same silver flowed in and cut of the bank, while the depositors waited. At one time a depositor demanded $150,000 in gold coin and at another the strain was so great that some of the richest of the Engli{sh nobility drove to the bank in coaches filled with golden guineas, which they deposited to help the bank meet its legitimale demands. 1 spent some time in the council room, where the directors meet, and in the li- brary chatting with the secretary about the government of the bank. It has a governor, a deputy governor and twenty- four directors. The governor receives $10,000 a year and €ach of the directors is paid $2,500. The governor is usually chosen from one of the directors, and on the average he is about twenty years in the directorate be- fore he is elevated to the office of gov- croor. The capital of the bank is at present a little less than $75,- 000,000, and its divi- dends last year were about 10 per cent. The notes now in circulation amount to more tban $150,000,000 and there are some- thing like $110,000,000 worth of notes oun hand, The bank has $185,000,000 worth of gold and silver coin and bullion, and alto- gether it is in such a condition that those holding its stock and notes are not lying awake at night for fear of its insolvency. Indeed the management of the funds is under such restrictions that it would be impossible for the officials to make way with them, and the vaults and offices are guarded by policemen and watchmen by day and by a company of soldiers at night. Even the shrewdest of our American criminals could hardly make their way into this Bank of England. Nevertheless some of the greatest frauds which have been perpetrated upon it were by Americans, You may have heard of the forgeries of George Bidwell and his brother, Austin, who, together with McDonald and Hill, created such a sensation here about twenty years ago. These four men forged notes upon the bank to the extent of $500,000 and got away with the money, although they were afterward arrested. BANK Forgeries of Half a Million, These men were crooks from New York who came to London with a capital ot $60,000. George Bidwell was the forger, but the others helped him carry out the scheme, The bank, you know, has its branches all over the city, and the vne in the West End has a big business in handling the private accounts of wealthy people. Austin Bid- well rented a house near this bank and then introduced himself as a wealthy American and opened an account with a deposit of $40,000. He drew out and paia in money for some time, cultivating the officials of the bank and talking to them of his friendship with the Rothschilds and others. He pretended to have business with the Rothschilds and one day brought in a lot of notes which he had bought of the Rothschilds in Paris, and asked the bank manager to discount them. The man- ager said he would let him know the next day if he would leave the notes, and in the meantime took them to the main office of the bank. The authorities there in- formed him that he could discount such notes by the cart load, and he did. Other genuine notes were brought in and discounted in the same way. This was kept up uniil the bank grew accustomed to dis- counting Rothschild’s notes and then Bid- w.l. began to forge such notes. He shoved them in by the bushel and took out gold to th: eémount of $500,000 in exchange. The most of this money he tcok away in go!d coin, which was carried off to the rented hcuse nearby. He would have gotten per- kaps $1,000,000 more had not Hill, cne of his confederates, omitted to fill in a aate on one of the notes. This caused suspicton and the forgers were discovered. They had time to flee, but sooner or later they were all arrested and imprisoned. McDonald and Hill were kept in prison for life, but Austin and George Bidwell were pardoned on the ground of ill health. They were released and came back to the United States. I don’t know that either was able to save anything from his stealings. The greater part of McDonald's share fe:l, it 1s eaid, into the hands of a detective named Irving, who, McDonald claimed, had agreed to al- low him to escape if he would turn the money over to him. George Bidwell had to give up his share when he was taken In Scotland, and I think that $220,000 of the money was captured in the ehape of United 8'ates government bonds which had been bought in London and sent to New York in a trunk of dirty linen. Frauds in Bank Notes. It is hard to counterfeit the Bank of Eng- iand notes not only on account of the paper and ink, but also of the care which is used by the bank to trace the note. Every note that comes into the bank must be Indorsed, although it is dcubtful whether such in- dorsement could be enforced, as the notes are payable to bearer. You may have heard the story of how the bank refused to cash one of its own notes for Plerpont Mor- gan a few months ago. As the story goes Mr. Morgan presented the note and that it be exchanged for gold. The cashie: requested him to write his name on the back, but he refused, saying that the note was to bearer, and as it was genuine the bank should cash it without indorsement. Upon the cashier persisting Mr. Morgan sald he would let the note go to protest, whereupon the banker threw up his hands in holy horror at the idea of a protest of the Bank of England. He was about to hand over the money when Mr. Morgan as a favor wrote his name across the back of the note. There are few financial institutions which can afford to bave a question raised as to their solvency. Hven the Bank of England doesn’t want i{ts notes to go to protest and it is sensitive as to its reputa- tion. I was told at the bank how a Jew once bluffed the officials into paying some notes which the bank officers knew were stolen. The Jew was a man of wealth and was well known in the Stock exchange. He had bought $100,000 worth of Bank of Eng- land notes from a clerk who had been em- ployed in one of the banks of the conti- nent, but who had absconded with this part of his bank’s funds. When the notes were presented the officials refused to pay them, but the Jew at once took them with him to the stock exchange and there proclaimed that the Bank of England had stopped pay- ment. He said it had refused to honor fits own bills for $100,000 and he showed the notes in corroboration of his statement. He sald he would continue to publish the fact that the bank was Insolvent and thereby almost created a panic. The ex- citement was such that the cashier of the Bank of England sent for him and gave him the money for his notes. It is doubt- ful, however, whether such a thing could be done today. FRANK G. CARPENTER,